Earnings Scorecard: Magna Int'l Inc. - Analyst Blog

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Magna International Inc.
(
MGA
) reported its second-quarter results for the year on August 6, 2010, outperforming the Zacks Consensus Estimate by a significant margin of $1.27 per share. The share price was stable and hovered around the pre-earnings level, albeit higher than 2009.

Analysts were optimistic given the company's impressive results and better outlook as almost every one of them revised the estimates upward. Below we will cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for both the short-term and the long-term.

Earnings Report Review

Magna posted a profit of $314 million or $2.78 per share in the quarter, compared with a loss of $144 million or $1.29 per share in the prior-year quarter. Magna's revenues shot higher by 63% to $6.05 billion, which was better than the Zacks Consensus Estimate of $5.43 billion.

Operating income improved to $373 million from an operating loss of $237 million in the second quarter of 2009. During the quarter, average dollar content per vehicle in North America and Europe rose by 27% and 8%, respectively.

The company benefited from a recovery in light vehicle production (LVP) in its two principal markets: North America and Europe. LVP in North America surged 75% while Western Europe increased 13% during the quarter. Furthermore, earnings were boosted by the company’s cost reduction measures.

Magna raised its earnings guidance for 2010, as automotive production levels continue to recover in both North America and Europe. The company anticipates North American LVP to be 11.5 million units, up from the prior outlook of 11.2 million units. European LVP is expected to be 12 million units, up from the previous guidance of 11.6 million units.

The guidance for North American content per vehicle has been increased to $955–$985 from $940–$970, while European content per vehicle has been upgraded to $520–$545, compared to the previous outlook of $515–$540.

Consequently, the company expects revenues in the range of $22 billion to $23 billion, up $1 billion from its previous outlook.

Given the profitability and improved outlook, the company's Board of Directors raised the quarterly dividend by 12 cents to 30 cents for Class A Subordinate Voting or Class B Share with respect to the second quarter of 2010.

(Read our full coverage on this earnings report: Magna Beats Estimates.)

Earnings Estimate Revisions – Overview

Estimates have improved since earnings were released, implying analysts' optimism about the stock. The share price movement was stable as well. The company has witnessed top line growth, its cash flow has improved significantly and its outlook is promising. Let's move into the earnings estimate details.

Agreement of Estimate Revisions

The table below shows a strong agreement among analysts regarding the outlook of Magna's earnings. Out of 14 analysts covering the stock, eleven have revised the estimate for 2010 upward while none has revised it downward since the earnings were released.

The trend is even stronger for 2011. As many as 12 analysts have revised the estimate upward while none moved in a downward direction. This impressive trend in estimate revisions promises a consistent stream of earnings.

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Magnitude of Estimate Revisions

Earnings estimates for 2010 are up by $1.52 from $5.61 to $7.13 since the last results. For 2011, estimates have been raised by $1.38 from $6.50 to $7.88. This looks promising again as analysts continue to value the stock at an increasing premium.

Magna at Outperform

Magna commands a strong competitive position in the industry, as it is one of the few providers of a complete range of interior and exterior auto systems to global auto companies. Increasing content per vehicle is the main driver of Magna's growth.

We also appreciate the company's continued focus on emerging markets, which contributed to a 31% increase in Rest of World (ROW) sales in 2009. Growth in ROW sales will benefit Magna as much of the future growth in global vehicle production is expected to occur in emerging markets such as Russia and various countries in Eastern Europe and Asia.

These factors, along with the improved results and a strong outlook, have led Magna to maintain a Zacks #1 Rank, which translates to a short-term (1–3 months) "Strong Buy" recommendation. In line with this, we reiterate our "Outperform" recommendation on the stock for the long-term (6+ months).

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/



MAGNA INTL CL A (MGA
): Free Stock Analysis Report


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Posted In: Auto Parts & EquipmentConsumer Discretionary
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